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31 Jan 17

What types are there?

Authors: COSAERT Sam.

Abstract: Preferences differ in the population, and this heterogeneity may not be adequately described by observed characteristics and additive error terms. As a first contribution, this study shows that preference heterogeneity can be represented graphically by means of violations of the Weak Axiom of Revealed Preference (WARP), and that computing the minimum number of partitions necessary to break all WARP violations in the sample is equivalent to computing the chromatic number of this graph. Second, the study builds the bridge between revealed preference theory and cluster analysis to assign individuals to these partitions (i.e. preference types). The practical methods are applied to Dutch labour supply data, to recover reservation wages of individuals who belong to particular preference types.

Reference: COSAERT Sam. What types are there? LISER, 2017, Working Papers n°2017-01, 32 p.

Keywords:
preference heterogeneity,
chromatic number,
revealed preference,
labour supply,
constrained clustering

JEL: C14, C38, C44, D12, D13.

Project: Nonparametric analysis of household consumption, labour supply and welfare

Linked publications
BRUYNEEL Sabrina, CHERCHYE Laurens, COSAERT Sam, DE ROCK Bram, DEWITTE Siefgried.
Quantitative Economics, 2017, vol. 8, n°3, pp. 1037-1082.
COSAERT Sam.
Computational Economics, 2017.